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Questions and Answers
What is the difference between risk avoidance and risk assumption?
Risk avoidance is avoiding an act that would create a risk, while risk assumption is the choice to accept and bear the risk of loss.
What is the main difference between a decreasing term policy and a whole life insurance policy?
The decreasing term policy maintains a level premium while the protection amount decreases, whereas whole life insurance offers ongoing coverage over the insured's entire life.
Explain the concept of underwriting in the insurance industry.
Underwriting is the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
Explain the concept of cash value in an insurance policy.
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What is the multiple-of-earnings method used for in determining life insurance coverage?
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What is the significance of a nonforfeiture right in a whole life policy?
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How does the needs analysis method differ from the multiple-of-earnings method in determining life insurance coverage?
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How does universal life insurance differ from variable life insurance?
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What is the primary purpose of Social Security survivor's benefits?
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What is the purpose of a multiple indemnity clause in a life insurance policy?
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Differentiate between term life insurance and whole life insurance.
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Define a participating policy in the context of life insurance.
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Study Notes
Decreasing Term Policy
- A type of term insurance policy that maintains a level premium throughout the coverage period while the amount of protection decreases.
Renewability
- A term life policy provision that allows the insured to renew the policy at the end of its term without having to show evidence of insurability.
Convertibility
- A term life policy provision that allows the insured to convert the policy to a comparable whole life policy.
Whole Life Insurance
- A type of life insurance designed to offer ongoing insurance coverage over the course of an insured's entire life.
Cash Value
- The accumulated refundable value of an insurance policy, resulting from the investment earnings on paid-in insurance premiums.
Nonforfeiture Right
- A life insurance feature giving the whole life policyholder, upon policy cancellation, the portion of assets set aside to provide payment for the future death claim.
Universal Life Insurance
- A type of permanent cash-value insurance that combines term insurance (death benefits) with a tax-sheltered savings/investment account that pays interest, usually at competitive money market rates.
Variable Life Insurance
- A type of life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder.
Group Life Insurance
- A type of life insurance that provides a master policy for a group, with each eligible group member receiving a certificate of insurance.
Beneficiary
- A person who receives the death benefits of a life insurance policy after the insured's death.
Policy Loan
- An advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder.
Multiple Indemnity Clause
- A clause in a life insurance policy that typically doubles or triples the policy's face amount if the insured dies in an accident.
Disability Clause
- A clause in a life insurance contract containing a waiver or premium benefit alone or coupled with disability income.
Guaranteed Purchase Option
- An option in a life insurance contract giving the policyholder the right to purchase additional coverage at stipulated intervals without providing evidence of insurability.
Participating Policy
- A life insurance policy that pays policy dividends, reflecting the difference between the premiums charged and the amount of premium necessary to fund the actual mortality experience of the company.
Risk Management
Risk Avoidance
- Avoiding an act that would create a risk.
Loss Prevention
- Any activity that reduces the probability that a loss will occur.
Loss Control
- Any activity that lessens the severity of loss once it occurs.
Risk Assumption
- The choice to accept and bear the risk of loss.
Insurance Policy
- A contract between the insured and the insurer under which the insurer agrees to reimburse the insured for any losses suffered according to specified terms.
Underwriting
- The process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
Multiple-of-Earnings Method
- A method of determining the amount of life insurance coverage needed by multiplying gross annual earnings by some selected number.
Needs Analysis Method
- A method of determining the amount of life insurance coverage needed by considering a person's financial obligations and available financial resources in addition to life insurance.
Social Security Survivor's Benefits
- Benefits under Social Security intended to provide basic, minimum support to families faced with the loss of a principal wage earner.
Term Life Insurance
- Insurance that provides only death benefits for a specified period and does not provide for the accumulation of cash value.
Straight Term Policy
- A term insurance policy written for a given number of years, with coverage remaining unchanged throughout the effective period.
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Description
Test your knowledge on decreasing term policy, renewability, convertibility, and whole life insurance concepts. Learn about the features and provisions of different term life insurance policies.
